The Globe and Mail

  2006 in review


Friday, December 29, 2006

Well, stock fans, it’s the time of year when we take a peek back at the Canadian hits and misses that breezed through this column. No question, it has been a mixed shooting gallery, but overall the results have been quite satisfactory.

On the most recent front, Algoma Steel was considered as a short in an October column. It is too early to gauge, but it has drifted down from $34.25 to $33.30. However, our prognosis is for a much more severe tilt to the downside.

Gold stocks have made regular annual appearances in the column. TVI Pacific was written about, along with a bevy of others, in July 2005 when at 10 cents. It was ejected earlier this year at 17.5 cents. It jumped to 25 cents in the spring, but lapsed back to the current level of 16 cents.

Band-Ore Resources has also been a success story: better than a triple from the 15-cent level when first written about, and it recently merged with Sydney Resources to form West Timmins Mining. Controlling a huge land mass that they are exploring in the Timmins area, the company is also active in the Sierra Madre gold belt in Mexico. The stock price is currently at 57 cents (deduct 10 percent for fair value after the share exchange), and Humphrey Bogart is considering reprising the role of Fred Dobbs to take part in the action.

Glencairn Gold moved up smartly from our purchase price in the low forties, handily passing the initial sell target of 75 cents to touch 95 cents. Unfortunately, as other gold positions were being sold, this one appeared to have enough lustre to push further ahead, and our customary discipline evaporated. That is unfortunate, as the stock has retraced its footsteps to 58 cents.

A couple of losers in the mining camp included South American Gold and Twin Mining. They have dropped from 7 cents and 14 cents respectively when the column appeared to skirt 5 cents and 10 cents.

Both outfits have new management teams in place, with the guys at South American Gold being more overtly active and with more realistic possibilities in the pipeline to turn the corporation around. One of us thinks that a triple from this level is within the realm of possibility and continues to hold both of these.

A couple of takeovers were in the cards this year. In September 2004, Hudson’s Bay was our topic and we talked about how buyout rumours had been a tonic for the stock price, then at $13.50, a fair distance from our $8.50 purchase. The stock price dipsy-doodled before a suitor came forward in Jerry Zucker, who paid $15.25 a share.

More lucrative was our play in NQL Energy, featured in April 2005, when it was trading well above our purchase price of $1.11 but at half our target price of $5.50. Ultimately we sold our position in three tranches, at $5.50, $9.49 and the last at $7.60 on the National Oilwell Varco takeover this month.

 One where we have been proven almost as wrong as wrong can be is with Cygnal Technologies. Chosen as our fave in the "My One and Only" Globe competition in 2005, it plopped 26 percent. Undeterred, we stated that if we had not been eliminated, Cygnal would have been our choice for 2006. Sitting at $1.11 then, it is now at 60 cents.

Given that it is under a buck, it would not qualify for the contest this year, so perhaps that is saving us. However, the enterprise does remain on our "buy" list and we expect big things going forward. Three strikes and we’re out?

If we were still in the competition, our pick this year would be Zarlink Semiconductor, which we acquired at $2.26 last month. This firm designs, manufacturers and markets semiconductors in a very competitive industry. Annual revenue going forward should be in the range of $150 million, with nominal earnings.

Zarlink has lots of cash, more than $100 million, or about 84 cents a share, and a crisp, clean balance sheet with no long-term debt. Insiders have been accumulating the company at a swift pace, evidently believing that their work will pay off down the road. Quite simply, it is not often that we see as many insiders accruing positions, and putting such substantial dollars on the line. Our target price is $11.49.

 In two weeks, we'll be back with a look at how the American side of the portfolio fared and with the numbers for our past returns. In the interim, enjoy the rest of the holidays, and all the best in 2007.